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European Commission - Press release

Taxation: Commission requests Germany to amend discriminatory tax rules on hidden reserves

Brussels, 29 September 2011 - The European Commission has formally requested Germany to amend its tax legislation on hidden reserves so as to no longer discriminate certain cross border operations.

Under current German legislation, a "transfer" of hidden reserves in case of reinvestments is only possible if the newly purchased assets belong to a permanent establishment in Germany. In practice, this means that a taxpayer wishing to sell certain of his fixed assets to establish himself in another EU Member State, Iceland, Liechtenstein or Norway or to expand his business activities there will clearly be at a disadvantage. This unequal treatment therefore discourages taxpayers from undertaking cross-border investments.

This discriminatory tax treatment is contrary to EU rules. In particular, the Commission considers this territorial limitation is an infringement of fundamental Single Market rules, notably the freedom of establishment provided by EU law (Articles 49 and 54 of the Treaty on the Functioning of the European Union and Articles 31 and 34 of the European Economic Area Agreement).

The Commission does not see any possible justification for the current German rules. The Commission's request to modify the German rules is the second step of EU infringement proceedings. If Germany does not notify the Commission within two months of measures taken to put an end to the infringement of EU law, the Commission may refer Germany to the EU's Court of Justice.


A hidden reserve is a resource that is not listed on a balance sheet, such as land or building shown at a value less than its market value.

German rules allow taxable persons to transfer, tax-free, hidden reserves from sold assets to other newly purchased assets. This transfer of hidden reserves can take place in two ways. First, the taxable persons can deduct the capital gains from the new assets during the business year in which the sale took place. Second, the taxpayer can create a reserve to reduce his profit and transfer this to assets he procures during the next four or six business years. However, this is only possible if the new assets are reinvested in a German permanent establishment. If the new assets are reinvested in a foreign permanent establishment, the hidden reserves cannot be transferred and are thus taxed immediately.

For press releases issued on infringement proceedings in the area of taxation or customs see:

For more information on EU infringement procedures, see MEMO/11/646

For the most up-to-date general information on the infringement proceedings initiated against Member States, see:

Contacts :

David Boublil (+32 2 296 55 73)

Natasja Bohez Rubiano (+32 2 296 64 70)

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